Husky pulls asset coup; snaps up Marathon’s Canada production

Gary Park

Petroleum News Calgary correspondent

Husky Energy, the smallest of Canada’s five integrated oil companies, has made a giant-killing move by grabbing the Western Canadian assets of Marathon Oil, then spinning off part of the acquisition at a fat premium.

Under the proposed transaction, slated to close Oct. 1, Husky is paying C$825 million (US$588 million) for 27,000 barrels of oil equivalent per day.

Then in a separate deal that has analysts gasping, Husky plans to sell 7,500 boe/d to EOG Resources for C$440 million (US320 million), meaning Husky will get almost 75 percent of Marathon Canada’s production for less than 50 percent of its outlay.

Marathon had hoped to raise at least US$400 million from the disposal of its Western Canadian assets when it solicited offers in March — a target it easily surpassed.

Analysts voted Husky the clear winner in the deal-making, with Martin Molyneaux of FirstEnergy Capital, saying it “looks absolutely amazing for Husky.”

The end result is that Husky will gain 19,500 boe/d of production, pushing its own output to 330,000 boe/d.

What Husky will be left with is production from Alberta, northeastern British Columbia and the Northwest Territories of 90 million cubic feet per day of gas and 4,500 bpd of oil from reserves of 9.2 million barrels of oil and 183 billion cubic feet of gas.EOG Resources will acquire 275 billion cubic feet of gas reserves in southern Alberta, producing 34 million cubic feet per day.

The sale does not include Marathon’s exploration interests offshore Nova Scotia, including a partnership with EnCana, Norsk Hydro Canada Oil & Gas and Murphy Oil to notch the region’s first reported deepwater gas discovery last year where gas reserves are estimated at up to 15 trillion cubic feet and 910,000 net acres of exploration leases.

Complement to existing property base

He said Husky, which has set a target of 500,000 boe/d by 2005, will pursue further investment opportunities.

The sale marks the end of Marathon’s operations in Western Canada, having unloaded its Canadian heavy oil assets last year, and signals its second departure from the region in 22 years.

The company pulled out in 1981, partly in response to Canada’s National Energy Program which offered substantial frontier exploration incentives to Canadian-controlled companies.

But Marathon moved back into Canada in a big way in 1998 when it snapped up Canadian producer Tarragon Oil & Gas for C$1.1 billion, kick-starting what turned into a multi-billion dollar scramble among U.S.-based E&P companies to corner producing assets.

The Tarragon deal was touted by Marathon executives as establishing a platform to build natural gas production in Western Canada.

Marathon President and Chief Executive Officer Clarence Cazalot Jr. said the Husky transaction is part of his company’s ongoing efforts to “high grade” its asset portfolio by disposing of interests that no longer provide a strategic fit and “reinvesting in new core areas with near and long-term growth potential.”

These “high-potential” opportunities include Marathon’s recently acquired Khanty Mansiysk Oil Corp. in western Siberia, which it bought for US$250 million, and which has about 250 million barrels of proved and probable reserves.